How Far Would You Go for $200?

Most people would not go very far out of their way to make an extra $200 a month. When compared to a monthly salary of $3,000 or $4,000; $200 sounds pretty insignificant.

A person might pick up an extra shift on a Saturday for a little vacation money; but the uncomfort from losing a weekend day keeps them from making a habit of it. Someone might sell an outdated computer or game system for a few hundred bucks, but that money’s usually gone by the end of the weekend.

As a way to create wealth, $200 doesn’t even cross most people’s minds. The average person spends more time buying lottery tickets and gambling in casinos than looking for ways to add another $200 to their monthly cashflow.

Successful Real Estate Investors

I happen to have the best job in the world. I get to produce videos about real estate investors, which allows me to meet many successful people and pick their brains in the process.

I’ve found that all the successful real estate investors I meet are excited about $200 a month in cashflow from one of their rental properties.

In most cases, that $200 a month is the main reason they pursued the property.

The Definition of Wealth

How you feel about $200 a month has a lot to do with how you define wealth. Most people associate wealth with a large dollar amount: Alex Rodriguez signed a $80 million dollar contract, or Bill Gates is worth $80 billion.

Throughout most of my childhood and early adult years, my definition of wealth was 1 million dollars. The day I opened up my bank statement and it said “$1,000,000” was the day I was going to be wealthy.

Rich Dad, Poor Dad

My definition of wealth changed the day I read the book “Rich Dad, Poor Dad,” by Robert Kiyosaki. If you have never read the book before, your next click should be Amazon.com to order yourself a copy. This book changed the way the world looked at investing.

One of the most important concepts in “Rich Dad, Poor Dad” is the definition of wealth. While most people look at wealth in terms of a large, one-time amounts of money; Kiyosaki says that this has nothing to do with wealth.

Wealth is determined by this simple test:

Quit your job today; and without touching the principle on any of your investments, how long can you live on your passive income?

Passive Income

A few forms of qualified passive income are:

Interest from Checking and Savings accounts

Dividends on Stocks (not capital appreciation)

Cashflow from Real Estate

All of these things A) give you cash on a consistent basis, and B) once set up, are relatively easy to maintain.

How Long Can You Live on Your Passive Income?

To figure out how long you can live on your passive income, you first need to know how much your personal bills are each month. Add up all of your expenses: everything from the house note and car note, to toothpaste and tuna. If you’re married, just do it for your half of the bills.

Let’s say that the average American needs $3,000 a month (after taxes). Since a month is about 30 days, that’s $100 a day.

So how long can you live on your passive income?

I would suggest that most Americans can only live a few hours… maybe a few minutes on their passive income. Most people don’t have anywhere near $100 a month in qualified passive income. They might be getting a few cents in interest from their savings account, but that would only cover a few seconds.

One Single-Family Rent House

Let’s say, in the next three months, you go out and buy one single-family rent house that cashflows $200 a month. Can you see how you may have done more to retire yourself in 3 months than you had in your entire working career?

That one house, and it’s $200 a month cashflow, pays for 2 days out of your month. If you don’t have more than $200 a month right now in passive income, this one house did more to retire you than you had done for yourself in your entire working career.

Now, go buy another one… that pays for 2 more days…

Buy another and you’ve now paid for 6…

By the time you have 15 rent houses, you’ve now paid for all 30 days in the month… and the month starts over again.

Theoretically, you can now live forever on your passive income.

Side Note on Kiyosaki

After seeing Kiyosaki live, buying his board game, and reading many of his books; I’ve come to realize that he is BIG on ideas, but small on details. When you finish reading his books, you’ll be so jazzed on creating wealth that you won’t know where to start… (that’s because he didn’t give you any details.)

Make sure you are part of a local investor group to fill in all the little details that Kiyosaki doesn’t tell you. My favorite is Lifestyles Unlimited® where I am both a member and mentor; but you should shop around until you find a group or groups that you are comfortable with. Go to NationalREIA.com for a list of investor groups in your area.

$1,000,000 401k

Now, let’s compare our 15 rent houses to a million dollar 401k. Let’s assume you were the world’s greatest at-home stock trader in the early 2000’s.

You listened to Jim Cramer every day and managed to act on his good advice and avoid the bad advice that lost everyone else 40% of their portfolio in 2008. You sold everything before the market crashed and now you’re ready to retire.

The challenge you now face is how much money to take out of your 401k in your retirement so that it lasts the rest of your life

Or.. as Del Walmsley likes to put it: so you can hurry up and die before you run out of money.

The Conventional Wisdom Plan

You seek the advice of a financial planner and they give you the conventional wisdom on retirement:

1. Conservative Investments

You’re told to put your money in conservative investments that will only yield 2-4%, but at least you can have some peace of mind in retirement. Sounds reasonable.

2. 4% Drawdown

You’re allowed to draw down your 401k at the rate of 4% per year to live on: $40,000 per year.

Before the crash of ’08, 4% was generally accepted to be the right amount to draw down in retirement. The book “The Number” lays out research from William Bengen showing that those who drawdown at 5% have a 30% chance of running out of money.

3. A Little Interest

Won’t I be getting some interest, too?

Yes, but it will be at a very low interest rate and getting smaller each year as you eat into your principle. Let’s say, another $10,000 per year.

$50,000 a year doesn’t sound as great as you had always imagined, but at least you don’t have as many expenses as you used to (you did pay off your house, didn’t you?).

4. Pay Taxes

Wait, I thought we were done!

Sorry, here comes the worst part… Now you have to pay taxes. You were sold on the 401k as a way to defer taxes, but you didn’t realize that defer was not the same as avoid. You pay roughly $14,000 in taxes which leaves you with $36,000.

$36,000 a year just happens to be $3,000 a month or $100 a day.

15 Rent Houses Did the Same Thing Faster

15 rent houses did the same thing as your million dollar 401k, but did it take you your whole working career and a huge chunk of your paycheck to build?

No. You can buy 15 rent houses in 5 years or less.

The Five Year Plan

Here’s how to buy 15 rent houses in 5 years:

Year 1: Save $5k from employment to buy 1 house with a hard money loan. (1)
Year 2: Save $5k and refinance $5k out of the 1st house to buy 2 houses. (3)
Year 3: Save $5k, refinance $10k out of last year’s 2 houses, to buy 3. (6)
Year 4: Save $5k, refinance $15k out of last year’s 3 houses, to buy 4. (10)
Year 5: Save $5k, refinance $20k out of last year’s 4 houses, to buy 5. (15)

This example only took $25,000 out of pocket over a 5 year period… much less than a million dollar 401k …and much faster.

But Wait… There’s More

The story doesn’t stop there, with 15 rent houses and $3,000 a month in cashflow. The beauty of real estate is that there are so many different ways it makes you money.

While a 401k gets smaller and smaller in your retirement, rent houses continue to increase in value and cashflow year after year.

1. Equity Capture

If you bought those houses correctly, you should have captured equity in each house. Let’s say you captured $20k in each house. That’s $300,000 added to your net worth.

2. Market Appreciation

Real estate doubles in value every 20 years. That means: by the end of your retirement, your real estate holdings would have exploded in value.

If each house was worth $100,000 when you bought it, then all 15 were worth $1.5 million. You could potentially add another $1.5 million to your net worth over the next 20 years.

3. Cashflow

Rents rise over the long run, adding to your cashflow year after year.

4. Principle Paydown

Your tenants will be paying down the notes on all of your houses. If you had 20 year notes on each house, you would have them all paid off in 20 years, adding another $1.5 million to your net worth.

5. Tax Advantages

Real estate investors pay the lowest taxes of any for-profit group in the United States. The cashflow is virtually tax-free when you account for the depreciation deduction the IRS allows you to take.

If you decide to sell and capture your equity, you can roll the profits into a 1031 tax exchange to defer the capital gains tax. When you pass the properties down to your children, they take over the property at the new cost-basis, wiping out all the capital gains tax.

Conclusion

Now, do you see why I stopped playing around with small-ball investments and focused on real estate? Real estate is the most powerful wealth-building tool that is available to everyone in the United States.

Comments

I think you missed one more advantage. When each house note is paid off your $200 a month jumps up to like $800 (rent minus insurance and taxes). Once your 15 properties are paid off, your cashflow could go from $3,000 a month to like $12,000 a month. That rocks!

Great article!!! My husband and I have 5 rental properties, all with morgages, and would like to buy more but since the economy has tanked, neither of us can find permanent jobs and banks won’t look twice at anyone who is not employed. How do we go about getting a loan to buy a house even if you have the $5K to put down and excellent credit?

Sharon,
I have the same problem you have. My wife and I have 7 (seven) properties and I had to take a forced retirement in 2010 and have not worked for ten months. During my lay-off I was unable to roll the hard money property I was working on to a new loan because no underwriter (bank) would loan me money. I was forced to use my own cash to pay it off to get out of my 13% hard money loan. Then used a credit union to re-finace the home into a 7% home equity loan. Not so good but there are soon secondary groups that you can go to and find loans, but it an’t easy.
My new direction is to give up (for now) on single family homes unless one is so good I got to take it. Multi-famity projects where you personal credit is not the factor is my current new direction.
I’m in the San Antonio group
One late note; now that I have not worked in ten months I just might never go back to work for any one else. Good thing I had these seven properites..

Good morning…..I have 12 rental homes which are Great investments for equity accumulation. However, they do not generate enough CASH FLOW collectively to go to McDonald’s. So in addition to the rental homes, I have invested in Manufactured Housing Communities (aka Mobile Home Parks). These generate FANTASTIC cash flow and in my opinion are better than apartment complexes.. Would be happy to share specifics. Mike

Hi I am very interested in how you handle your investments, how you started, any help will be so greatly appreciated. I live in Amarillo Tx and me and my partner want to start working on investment properties and well we need all the help to get going, thanks & God Bless!
Anna Lisa Ramos

Mike i would love to get into the mobile park business; any info you have on how to get my foot in the door would be great. I own 4 rental properties free and clear. each worth about 20,000 each and a gross monthly income income from them at about 1800 a month.

Please explain how this is better. I own a mobile home in a trailer park and the lot rent is 550.00 a month, which continues to climb along with inflation. I see no win buy mobile / manufactured homes if you don’t own the lott.

If you want to be more conservative, you might bump up the numbers to $10,000 per house and you won’t be out of pocket much more (50k vs 20k).

As for the refi’s: in the example we only refi the previous year’s purchases. that means that each house only gets refinanced once. I’ve seen people refinance in as little as 3 months after purchase and take that money out right away.

Yes, a refinance is going to bump up your mortgage payment, but if you have $200-300 cashflow you should have plenty of buffer and rents will go up over time to compensate for the payment.

The nice thing about buying real estate CORRECTLY is that the cashflow and equity get immediately attached to your income and balance sheets…

The only catch is that the banks only take something like 80% of your rental income. That means that you have to make sure you are cashflowing at least $200 on a $1000 rental house. In that case, it will not affect your borrowing power either way as far as I understand. Blake Yarborough (above) can answer that better than I can.

In terms of reserves… you might consider putting your cashflow aside each year to add to your reserve pool. Most lenders want 6 months liquid on each property. (again, Blake can answer better than I can)

Exit strategy for most Lifestyles members is to sell off and buy into apartment complexes with steady cashflow in retirement.

The only thing I can say about finding deals below 70% LTARV is that I see them going down several times each month here in Central Texas.

One factor is SPEED. If you are working off the MLS, you have to keep a sharp eye on new listings every day and shoot out offers within the first few days if not hours.

If you want to get more aggressive about finding deeply discounted deals, make sure you have a team of agents. You could even explore other marketing channels such as farming neighborhoods, mailers, etc.

The example was to get 1 the fist year… That might mean it takes 6 months to find that really great deal… Keep on the trail and you’ll get it. Ask others how they are finding theirs.

In today’s market conditions, isn’t $5,000 a little low, even for a hard money loan? It seems to me that $8-10,000 is the number most people are giving me.
In today’s market, is it possible to refinance every year to buy the next house?
If you refinance every year, aren’t you in effect starting over at year 1 on the loan, and thus your renter would NOT be paying off the mortgage?

I’m not trying to be a nay-sayer (I hope to close on my first property soon), but I’ve heard these exact details before, and I can’t get my mind around them with the real-life stories I’m hearing. Can someone explain what I’m missing?

Thanks! OK, I have a couple more questions which I should have thrown in with the first batch:
If a person’s financial situation doesn’t appreciably change between Year 1 and Year 5 (ie, they still have roughly the same earned income and the net worth is only increased by the unrealized equity in the rental properties), will they be able to put aside enough reserves to satisfy the additional loan requirements?
And how will their debt to income ratio be affected by the additional mortgages (if everything else is mostly the same, except for the $200/house cash flow each month)?
What kind of an exit strategy would you recommend for a person with 15 houses who has effectively retired? Stay in SF, or would they be likely to be able to earn $3,000/month cash flow in a MF deal?
Thanks!

My wife and I are Lifestyles members have been trying very hard to get started by using a hard money loan or a double close loan. I know it is possible since there are some Lifestyles investors who have been successful recently. However, we have found that since hard money loans finance between 70%-75% of after-repair-value (ARV), finding a property with enough equity to cover purchase price, rehab and closing costs and only come out-of-pocket 5K is not common anymore.

The few properties that we have found recently that do have enough equity for this to work have a lot of competition from other investors. We have made offers on a handful of properties with this kind of potential only to get out bid even when we have offered 6K-9K over list on all of them.

Some may be bigger cash flow 400-500/month, but no equity appreciation. Others may have no cash flow, but may appreciate.

If you are buying properties in areas with the best schools, stores etc… You may not be able to always fit hard money. I have been able to buy 23 properties in the last 13 months with the max of est 10k out of pocket. Some were with as little as few hundred dollars!

Properties 1-4, we are able to use 75% of gross rental to “wash”, the payment. If you have a $750 payment (75k loan), and you rent it for $1000. We are able to use 75% of $1000, or $750 to “wash” the 750 dollar payment. This equals zero net affect on you debt ratio.

The great thing about rental properties is that they pay for themselves!

I just wanted to say, what a great article. I will share this with my husband who is a stock investor. I think this may go a long way towards a mindset change. Just as a side note: you use the word, “differ” which should be “defer.”

I’ve finally gotten my family situation settled.I want to know I can secure financing.My fear is someone accepting my offer and not being able to follow through on the purchase. Blake can you help me with KILL this fear?!!!

I am not an expert but owning 7 rental properties has helped me understand some things and these days I do much better than when I started, so I am going to try to answer some of the questions above [Warning! I talk about me a lot below :-) ]…

*Sharon – I am in a similar situation, I can’t get financing these days because of the number of financed properties I have. So I started looking for partners and I submitted an offer on a house with a partner on Friday, I should be hearing from the seller today. Hard Money would not be my first choice because as far as I know, those are short-term loans and they are expensive; I’d rather share profits with a partner (family member or not).

*Meg – I overspent a little bit on my last deal and my out-of-pocket was barely $5,000. Now, I used hard-money and I still have to refinance the property. With more and more houses selling cheap these days, the comps at the time I refinance may be lower than when I bought the property there is a chance I may have to chip in some money when I refinance that har-money loan but the bottom line is that there are are few houses out there (I can only speak for the Dallas/Fort Worth area) where your out of pocket will be minimal if you do things right.

*Meg(2) – Robert Kiyosaki recommends (and I agree) that you should tighten your belt early in your investing career so you can invest more in the begining and increase your income and net worth sooner. I was a big spender, once I figured out this real estate investing stuff, I started thinking twice before spending on anything I don’t really need because it is money that I could otherwise invest. In regards to DTI, it is like Blake stated, 75% of your rent income is what banks consider, not 80%. But after 4 properties you have to find a bank that will let you deposit and arm and a leg into your checking account, they ask for 6 months worth of reserves for each property, including the one you plan to buy, not to mention down payment and closing costs.

*James – There are properties out there and yes, there is competition, I have been outbid as well. Most likely the investors you are competing with have their own crews or a relationship with a remodeling company so they may be paying less than you would for the rehab, leaving them with a bit more money to pay for the property. I had to overpay for remodeling at first, then I just started getting better rates for repeat business. Also, you have to make sure not to estimate flipping repairs when you should be estimating rental repairs. And like Brian said, SPEED is critical, especially on the better deals, but in order to be quick, you need to have some experience and a reliable GC that will come with you to walk the property the day you find out about it. I have missed some good opportunities for not acting fast.

*Crystal – You are absolutely right, but you missed another word that is misused in the article. Can you find it? ;-)

Thanks to everyone for their thoughts.
James, I can tell you that I made more than 20 offers to get to one executed contract. And I’ll give you a tip; once I got that one under contract, referrals and tips started pouring out of the woodwork! So many of the people on our team knows somebody who has good deals to pass around, so don’t be afraid to tell ANYBODY involved even remotely in real estate (ie, realtors, rehabbers, inspectors, hard money guys, mortgage brokers) that you would appreciate any leads they can give. Competition on the MLS is fierce; I’m seeing that the good deals go to people before the deal even hits the MLS. Those are the folks you want to be talking to, IMHO. Good luck! There’s enough to go around, you just have to find it!

I am looking a 3-4 plexes and all the brokers I can find are requirinq 25% plus 6 months reserve. They claim new FHA rules…. Am I looking in the wrong spot? I must keep it rented as I do not have enough income to make 2 mortgages.

I love this article! Last month, closed on two houses at the same time, one with hard money and one with regular FHA financing. I’m in the process of refinancing to get out of the hard money. This will net zero my total out of pocket investment on both homes.

I agree with the article and the advantages of passive income over basically anything out there. Having a strong foundation built through wisely invested money will allow you to then take a step further and go from single family, to multifamily as well as to begin looking at flips etc. I have 3 single family homes, 1 duplex, and am currently in the closing phase of a 32 unit multifamily portfolio. I have been able to see the good and bad of this type of investing, and I would recommend to anyone who does to ensure you:

2. Form a parent/umbrella LLC through a lawyer who will then be the on call if and when something legal regarding the entity comes around.

3. Purchase a house after doing due diligence, and figuring out if it meets a certain criteria, ie 12% cash on cash return first year as a minimum, and a CAP (capital appreciation)Rate of 10+ (this can be hard to do given certain demographics)

4. Upon closing, have your parent LLC purchase a sub LLC and then use the Quit Claim legal document to put the property under the control of the sub LLC.

Things to also keep in mind given the current market:

1. Banks require a 25% down payment on rental properties (last time I was researching a single family residence, which was in November 09′).

2. Interest rates are typically 1 point (%) higher or more then for an owner occupied property.

For commercial loans:

1. Most lenders require 20-30% down without the ability to seller finance. There are rare cases however, when seller financing is possible.

2. Lenders typically do a 5-10 yr arm or balloon loan for loans that are less then 1M.

3. Current lenders rates are around 6.875% Amortized over 25 years, when running your numbers.

4. Lenders most of the time require a 1.2 – 1.5 DSCR (Debt Service Coverage Ratio)

To conclude; I have been able to make anywhere from 450 – 1K a month net passive income per property that I have acquired in the past 2.5 years. That is in the midst of this crisis. Most people say don’t buy now, but they completely have lost sight of he concept of buying low, to sell high down the road, whether it be a 5,8,10+ year turn around plan. The rental market for the most part is very strong due to the mortgage crisis, I have seen this where I own the properties: Nevada, Colorado, and Missouri. For anyone willing to take the time to learn, Real Estate has shown time and time again statistically to come out on top and to make the rich even richer as well as provide a method for the middle income to climb out of their bracket.

yes right now i have bought a house with cash and remodeled it. I live in it now and it is paid for. A realtor told me to list it for 60000 if i want to try and sell it. I am in a pickle on deciding whether i should sell it or rent it out and use the money i have in the bank to buy another house and let the rent from this one pay for it. I would really like some advice with pros and cons with renting or getting the cash and buying.

The way I look at it is that if you are going to put the money to work and it is going to give you a ROI that is higher than the interest you are paying on your home, then get a home equity loan on your home and that loan should give you enough to repay your loan plus some more. Just be careful, when you are a beginner you are propably going to make more mistakes than an experienced investor (i.e. you will spend more than necessary on your investment properties), so just keep that in mind. Also, I always “listen” to what my gut tells me (keeping in mind that I have completely lost the fear of investing in RE), so if my gut were to tell me that I want a house that is fully paid for to keep my family in, then I will factor that “feeling” in my decision process. Just think about how much risk you and your family can tolerate.

One thing I have been impressed with while researching, listening and attending Lifestyles is that when a property is purchased, it is usually improved and therefore, improves the “neighborhood”. I have not heard or seen a question or issue that Del, Steve or other Lifestyles members have not been able to answer and have it make sense. Lifestyles is a caring and genuine organization and I look forward to participating in real estate investing and the lifestyle it provides.

Brian, excellant article, great to refer people back to as well. I used the Cashflow 101 board game as well, to help build the investor mindset, but the lifestyles mentoring and education (with people like Del and Jeff Smith) is what helped me put it all together.

My wife and I have been able to retire ourselves thanks to the passive income from our real estate portfolio. And we are looking to continue to build our passive income through real estate investing.

I have a property under contract, valued at $122,000.00 struck a deal for $80K with closing on 30th but the catch is I have to come up with $83K in cash by closing date. I have $70K available and in need for $13K. Any hard money available to borrow from company or private investor with premium interest rate for short term?

After reading this article, I think my life may have changed, forever. I am a commercial truck driver for a large company but I want to be home with my family more. I recently came home from OEF Afghanistan as a soldier and I have been doing my best to pay the bills.

I have $20K-$40K saved from the deployment and my own savings plan from my weekly paycheck. My wife works but she is pregnant and will be home with the baby over the next few months. I want to put this money to work.

I read that you need 25K for 15 homes but that is if you know what is going on. I am basically a noobie. I live in a rented house with my wife.

I know there are wealthy folks making $$$ from real estate. A soldier I met in 2010 was closing on an apartment duplex in Las Vegas when we were training together. He kept asking for time off to use the phone so I asked him why and it was a $3-$4 Million dollar deal that was going down.

I know it works, I just don’t know where to start, but I think that may have changed….today.

I have 6 rental properties and I don’t know how to buy more because all the bankers said I cant get anymore loans. With the house market keep going down since 2006, it is almost impossible to get home equities out as value keep dropping. I don’t see how it is possible to buy 15 rental properties with $25k in 5 years. Maybe i am a different area than most of you guys, I am in Los Angeles area. By the way, I’ve bought all 6 units in the last 18 months. Bankers required min of 25% (my out of pocket now is about $250k) down payment for investment properties. Are you guys really able to get so many properties with so little down or almost nothing down? $5k barely covers the closing cost in my experience. This article is very motivated, but doesnt apply to current market condition anymore, maybe this was true back in 2001-2007. Maybe I am wrong, but this is only base on my experience. Really? $25k gets 15 units in 5 years? Is $25k even enough for closing cost?

Yeah, I agree with you as I have had rentals in the DFW area for 30 yrs – it’s basically a forced savings account that you have to manage and devote time to. But, if you stick it out at the end of 30 yrs you will own something :)

I have two questions.
How do you find tenants and how do you screen them? I own two rental houses and I had to use MLS to find tenants and I the listing fee is one month rent. So, I am getting only 11 month of rent and it just covers mortgage+insurance+tax. I tried to list the house by myself and no luck in getting tenants.
Can I take “Equity loan” from rental property? or I have to refinance?
Refinance normally costs $2K or more.
Also, if you don’t have 20% down you end up paying “mortgage insurance” which is expensive…

The example is a little over-simplified. First, you cannot borrow/re-finance a home you bought as a rental as no bank nowdays will lend you money on a rental. When you get loans, there are points, closing costs, etc that can amount to over $2500 in fees etc. per home. In addition, if you have 15 homes, you will not be able to retire because you will be working to keep them up / rented / in service full time. Accounting for vacancies, large expenditures (at least one per year with that many houses), you will not get the cash flow expected – especially with mortages on all those properties.

I recommend purchasing foreclosed/under market properties (maybe one or two at first) using home equity loan and 401k loan (low interest) and paying cash (so the homes should be $50k or less apiece). Rent them and pay off the loans asap before purchasing others using the same technique. The goal is to PAY OFF THE MORTGAGE asap so that you actually own the properties. Do as much work/management as you can without hiring others. It’s a good learning experience and saves you money.

I just heard the show on 1070am this morning. I am an Architect looking to expand my career. I have looked over the website and have seen the successes of the homes purchased. Fixing them with minimal funds is a good way to modernize them to rent them out. What I have a question about is this: If you are only making say 200 bucks a month clear on any given property and all the numbers work out great over the long haul, why isn’t anyone saying what an average figure would be for maintenance? Roofs need to be replaced. HVAC needs to be maintained, if not replaced, every so often. Clients usually have pets, if they rent houses, and most pet owners LIE about how wonderful their pets are, like not urinating or poo’ing in the house, not to mention cats and their litter boxes. Then you have smokers. What about the odd person who just trashes your house? My grandmother had houses until her late 80’s when she had to go into assissted living. The tenants became so problematic, my Dad and his brother sold all of them because managing them was too stressful for two retired men. I guess what I am asking is as a professional who builds buildings and rennovates buildings for a living, how does one offset costs associated with maintenance and repair in the overall lifecycle of the property?? Is the deposit, non-refundable, in order to save as an emergency fund? Do people usually tack on extra deposits for animals, that are non-refundable as well? I would rather own duplexes or quadplexes like around Rice U and older parts of Houston, because of less properties to keep track of over the years……

Very cool… and since this article… prices are down, mortgage rates are down.. invest in rental real estate now at the lowest rates of a lifetime, benefit from tax advantage(s) and very likely have value appreciation as well… can’t beat it.
See Get Rich Slow by John Webber-book with tools and suggestions on how to go about it….

Real estate is an excellent vehicle for wealth no one will dispute you on this position. After loosing money in this business, I have learned a lot, I am very cautious of borrowing money for my projects. I know borrowing money can build faster growth, however it can build a faster TRAP as well. I agree with John Ryan, paying off mortgages or any debt for that matter is the best long term outcome. It will limit the PAIN if the bottom was to fallout. I buy all my properties cash, sInce I started in April of 2012 I have 7 rental properties with over $300K in equity. There is no such thing as good debt anymore no matter how you may try to justify this business strategy! One wise man was said and I quote ” Debt is the proof of impatience” . What most of you are spending in closing cost I am purchasing my properties with an minimum of 30% CAP rate on each and every project! You have to think if everything FELL what is my PLAN, what is it I am willing to LOOSE! BUY rite is the greatest advice I can tell you other than limit your DEBT at all cost! BUY RIGHT, BUY RIGHT! To me if I am going to sacrifice anything over $50K be it cash or credit and it only generates me $200 in monthly cashflow the downside is not worth it, now if I had plans of purchasing that 1 property then mabe. What get most people in trouble in business is they only think of the GOOD (Theory) not the BAD ( Reality)!

Dear Dreamer, Great points. You definitely have a strategy that is working for you and I know a few members who do the same thing.

However, most of my members and students do use leverage. People who say that leverage killed them in a down turn did not know what they where doing. I have been through two downturns and never lost a single property. Neither has any of the hundreds of other investors that I personally know that use leverage.

If fact, of the hundreds of millionaires that I know, all of them used leverage to get where they are today.

On the impatience comment, this is a pet peeve of mine. Damn right I am impatient. I wanted to be rich at 35 not 65 and I was. Don’t let someone use fear of leverage to keep you from your dreams. Just because they don’t know how to use leverage effectively doesn’t mean it can’t be done.

If I where you I would take that $300,000 equity and go buy 30 houses that make about $400 each cash flow. That is $12,000 a month cash flow for the rest of your life. Your done. Your retired. You could easily do that over the next 5 to 7 years. My son and I are doing that right now.

Thanks again for your comment and I hope to see you at a meeting some time.

cashflow and equity growth are both important, paying down mortgages is important, I currently own 15 rental units, an 11plex that is paid off, and a 4 plex that I hope to have paid off in 3 years, gross income is about $120,000 per year, I have savings, but rentals compromise the majority of my retirement planning. I’ve considered selling and investing my equity, but there is no way you can get the returns that you can with real estate. My plan is to retire in about 2 years at age 50, these apts should give me a comfortable income of $50-60 K per year after expenses. I started off with a 2 unit, living in one, and renting the other and progressed through many properties, to get to where I am now. I am a hands on owner, and this works well for me as I am a construction worker. I would highly reccomend real estate as a means to build wealth for anyone, just a caution not to get leveraged too much.

Very motivating article. Can you detail how the cash out refi is done? I’ve only spoken with two banks about it, but both are telling me they will only grant a loan for 80% of the appraised value. Are other banks more flexible? If I went with either of these two it would likely be more than just one year before I had enough equity in a property to do a cash out refi and have an extra $5000 to use as a down payment on an additional property.

Great article, sound advice! I like how it has advice for the mogul and the little guy starting out. Amazing and kudos to you all, even the comments were filled with wonderful experiences and advice. Be Well.

I have 10 rental properties I gatherd through what I call “creative financing.” The problem I have is when the properties are depreciated (taxes) every year to include: milage, and repairs it leaves me with a loss on paper. I actually get a tax return back slightly less than 10k a year. I have a job ontop in addition to owning these rental properties….The banks are not willing to give me a loan due to this loss. I can save and buy more properties but I can only buy about 1 a year. Should I report a profit or not?

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